USD/CAD stays firm slightly below 1.4300 after US Retail Sales, Canadian CPI data release

• USD/CAD holds gains near 1.4280 as soft Canadian inflation data has boosted the need for more BoC interest rate cuts.
• Annual headline CPI rose at a slower pace of 1.9% in November. In the month, it remained flat.
• US Retail Sales grew sharply by 0.7%. Investors await the key Fed policy meeting.

The USD/CAD pair remains firm near 1.4280 in Tuesday’s North American session after the release of the Canadian inflation and the United States (US) monthly Retail Sales data for November.

The cooler-than-expected November Canadian inflation report has cemented expectations of further policy easing by the Bank of Canada (BoC) in 2025.

The inflation report showed that the headline Consumer Price Index (CPI) rose by 1.9%, slower than estimates and the prior release of 2%. Month-on-month headline inflation remained flat, as expected. In October, the monthly headline CPI rose by 0.4%.

BoC’s preferred core CPI measure -which excludes eight volatile items – decelerated to 1.6% from 1.7% in October. On month, the BoC preferred inflation measure deflated by 0.1%.

Meanwhile, the US Dollar (USD) ticks higher after the release of the better-than-projected US Retail Sales data. Retail Sales, a key measure of consumer spending rose by 0.7%, faster than estimates and the prior release of 0.5%.

Going forward, the major event for the US Dollar will be the Federal Reserve’s (Fed) interest rate meeting on Wednesday. The Fed is widely anticipated to cut interest rates by 25 basis points (bps) to 4.25%- 4.50%, its third cut in a row.

Investors will pay close attention to comments by Fed Chair Jerome Powell to determine whether the central bank will temporarily pause the policy-easing process at the start of 2025. According to the CME FedWatch tool, there is an almost 80% chance that the Fed will leave interest rates unchanged at 4.25%- 4.50% in the policy meeting in January.